by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

Happy Monday on this last day of August.  Risk markets are quietly higher this morning.  We begin with Japan, as leaders of the LDP jockey to replace Abe.  We update the situation in Belarus and then discuss other foreign news.  China’s update comes next. We close with the pandemic update.  Here are the details:

Abe:  After PM Abe’s sudden decision to resign, candidates are emerging to replace him.  The LDP is planning on filling the position by as early as mid-September, meaning if a MP is interested in taking the role, he (and it appears all the leading candidates are men) needs to make his intentions known.  Whoever gets the job will have a long list of tasks to address.  Although Japan has managed COVID-19 remarkably well, given the advanced age of Japan, dealing with Japan will remain a serious challenge.  In addition, the postponed Olympics are expected next summer, and there is also the issue of the U.S elections.

Belarus:  For the fourth consecutive weekend, large protests were held in Minsk.  The action didn’t ease even on Lukashenko’s birthday.  Lukashenko is exercising increasing control of the foreign media; if he is considering a major crackdown, having foreign “eyes” out of the way would make sense.  The Baltic states announced new sanctions on the country and various officials.  Although Lukashenko continues to hold power, we are starting to hear names emerge as a potential replacement.  Oleg Gaidukevich, Elivra Mirsalimova, and Viktor Babariko are seen as pro-Russia.  If Putin does need to intervene to end the protests, he probably realizes that Lukashenko’s time has passed.  Sending in security forces but ousting Lukashenko would make sense.  There are other potential replacements; however, they are not seen as all that supportive of Moscow.  So far, Russia is signaling it could intervene, but it clearly is in no great hurry to do so.  Lukashenko has been less than helpful to Moscow for some time; we suspect Putin will allow things to get bad enough that removing Lukashenko will be welcomed, giving Russia the opportunity to replace the current president with someone more compliant.

Other foreign news:

• We should know today if Argentina has enough support from creditors to restructure $65 billion of existing foreign debt. The country has been in default since May.  The debt under negotiation is only part of the $323 billion of foreign debt Argentina has on the books.  The country is a serial defaulter.  The current event is the ninth.
• The EU is considering sanctions on Turkey over the current tensions in the Eastern Mediterranean. We doubt these will be meaningful because Ankara could release thousands of Syrian refugees into the EU, causing another crisis.  Adding to this threat is the potential for a wave of new refugees from Lebanon.
• In Lebanon, French President Macron is on his way to Lebanon for the second time since the port tragedy.
• India is accusing China of “provocative military movements” on its northern border. This region has seen rising tensions this year.  The two sides did try to improve relations after a flare-up this spring and, until today, there appeared to be at least a cold peace.  But it does appear that China is prepared to escalate the situation.
• Brexit talks are stalling. This outcome may not be all that bad for the U.K.  Financial markets have had plenty of time to digest this outcome and should have discounted a “hard Brexit.”  In the end, a U.K. compliant with EU rules but not in the EU is probably worse for Britain.  Increasingly, it looks like we will probably get a modest agreement and spend the next decade working out a more permanent solution.
• Montenegro held elections over the weekend. The pro-Western Democratic Party of Socialists appears to have a narrow lead over the pro-Russian parties.  Neither bloc has enough seats to form a majority in the legislature, meaning that coalition talks will commence after the vote.

China news:

• TikTok’s plan to sell its U.S. operations may run afoul of new Chinese laws that govern technology exports. Under the new regulations, TikTok’s product may be considered subject to export controls, thus requiring Beijing’s approval before a sale can occur.  If this is the case, it may make it impossible to break up the company and the popular app may be shut down for U.S. users.
• China has offered some form of debt relief to 10 nations, half of the 20 asking for help from Beijing. The G-20 has a “standstill program” that defers debt service for 76 low-income countries.  China is using the G-20 framework.  Angola was not part of the first group. The African nation owes $49 billion of foreign debt, with China’s share being 45% of that total.  We will be watching to see what sort of aid China will offer Angola, l looking for a signal of just how helpful Beijing will be over this issue.
• The leader of the Senate of the Czech Republic has led a 90-person delegation to Taiwan. Milos Vystrcil is the second-highest ranking person in the Czech government.  China is furious with the visit.  Czech President Zeman has seen his support decline over his policy of building close ties to China; it appears Vystrcil may be signaling a distancing from Zeman by this unofficial visit.
• As tensions rise in the South China Sea, Taiwan is moving to boost its defenses against potential military action by China.
• When Thomas Piketty wrote his tome on capital, it was welcomed in Beijing as a criticism of capitalism and a confirmation of socialism. Piketty followed Capital in the 21^st Century with Capital and Ideology, a book that focuses on inequality.  The second book will probably not be published in China because Piketty noted the high level of inequality in China despite its socialist economy.  Beijing made censorship of those passages a requirement for Chinese distribution; Piketty refused and so the book is apparently banned.

Unemployment insurance:  It appears that only five states are planning to deploy the $300 per week boost to unemployment benefits at this time.  Forty-one have applied but implementing the benefits requires tweaks to aging state unemployment systems, and the majority of states simply aren’t ready to distribute them.

COVID-19:  The number of reported cases is 25,248,595 with 846,871 deaths and 16,634,346 recoveries.  In the U.S., there are 5,997,622 confirmed cases with 183,068 deaths and 2,153,939 recoveries.  For illustration purposes, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics.  The FT has also issued an economic tracker that looks across countries with high frequency data on various factors.

Virology: 

• The FDA has indicated that it would consider “fast-tracking” a vaccine for COVID-19, although Stephen Hahn has indicated he would not make the decision under political duress. This means the FDA may approve a vaccine before Phase Three clinical trials are complete.  Both China and Russia have made similar decisions.  There is already a high level of vaccine skepticism in the U.S.  Any vaccine will probably have a slow path of adoption, but one that has a rushed approval could be problematic.
• As nations live with COVID-19, we are seeing researchers rethink how to navigate the virus. Broad lockdowns are increasingly being shunned. It does appear outdoor activities are much less risky than indoor meetings.  Mask wearing seems to help curb infections. Ensuring the highest risk population take precautions while allowing younger people to circulate appears to allow the economy to recover without overburdening the medical system.  More sophisticated guidance, based on behaviors and locations, are starting to emerge.
  • One trend that has developed is that men appear more susceptible to the negative effects of COVID-19. It appears women have a stronger immune response.  This factor may also account for a greater incidence of autoimmune diseases from the virus.
  • As we await a vaccine, one of the unknowns is what sort of immunity a shot will provide. This report offers a primer on the four types of immunities.

COVID-19 and the economy:  Two items of note—first, soon after the pandemic shutdowns, companies furloughed thousands of workers.  The idea was that the workers were facing temporary layoffs and would soon return to work after the pandemic was corralled.  Sadly, it appears that more of these layoffs are turning into permanent separations.  Second, real estate finance has a history of fragility.  Building lending is rarely self-liquidating, the very definition of Hyman Minsky’s speculative finance.  Under such conditions, real estate financing is fine until there is a disruption and it suddenly becomes scarce.  We are seeing rising stress in the financing for this sector.

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by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

Happy Friday!  Equity markets are moving higher this morning; we cover the consumer spending data below.  There is a lot happening today.  PM Abe, suffering from chronic digestive track issues, has resigned.  We recap the historic Powell speech from yesterday.  Hurricane Laura news follows.  We have a comment about the current political environment.  These items are followed by our regular update on China and foreign news.  We wrap up with economic news and a pandemic update.  And, being Friday, a new Asset Allocation Weekly is available, along with the associated podcast and chart book.  This week, we take a look at the impact of expanded unemployment insurance and employment behavior.  Let’s get to it:

Abe:  PM Abe, the longest serving leader in the G-7, is stepping down.  He suffers from ulcerative colitis, and apparently his condition has deteriorated to the point where he can no longer continue his duties.  He has been the longest-tenured PM in Japanese history, holding the leadership position since 2012.  Under Japan’s parliamentary rules, the Liberal Democratic Party will replace Abe without new elections.  The most likely successor will be Shigeru Ishiba, the current Defense Minister.  Perhaps his most important legacy is that he was able to weaken the JPY without triggering a negative response from the U.S.

This chart shows the JPY on an inverted scale, with a vertical line showing when Abe took office.  He was able to engineer a noteworthy depreciation of the currency which has supported Japan’s economy.  We would not be surprised to see the U.S. pressure the next PM to allow the currency to appreciate; this would be expected regardless of who wins in the U.S. November elections.

What does Abe leave unfinished?  The biggest failure of his administration was his inability to change Japan’s constitutional defense posture to allow for offensive military actions.  If the U.S. is reducing its position in the world, Japan will need to be able to protect itself.  If the U.S. does force the JPY to appreciate, Japan may need to offset that economic pressure; defense spending might help in that endeavor.

The Fed:  Jay Powell spoke yesterday and made it clear that the singular focus on inflation suppression that dominated the Fed’s thinking from 1978 to 2006 has ended.  We have lived through a period, from 2007 to the present, where financial stability was the key policy goal.  That policy led to interest rates being held at low levels well beyond the expectations of market participants.  The chair indicated that the focus of monetary policy is essentially going to shift toward boosting employment.  Although various Fed chairs have paid lip service to the employment mandate, in reality, it was clear that preventing a return of rising inflation expectations was driving policy.

Market action yesterday suggests that participants believe the chair and are preparing for higher inflation.  Here are the key issues going forward:

• How comfortable is the FOMC with rising long-term interest rates?
  • If the Fed wants to support the financial system, it will let long-term rates rise and steepen the yield curve. A steeper curve should support bank lending and encourage investors back into the fixed income markets.
  • However, there is likely a limit to how high of a rate the Fed will tolerate. As we noted yesterday, we are seeing a nice rise in real estate activity, which is led by the millennial generation.  Higher mortgage rates will tend to undermine that trend, although some of that problem could be offset by falling home prices.
  • Another complicating factor is that rising rates may trigger financial stress. In March, the fragility of the financial system was revealed; the Fed stopped the problem in its tracks by aggressive rate cuts and a broad spectrum of programs to support numerous areas of the financial system.  Allowing rates to rise could unexpectedly trigger problems in the financial system.
  • Simply put, this news today is bad news for long-duration bonds. Anytime a central bank signals that it is willing to allow inflation to rise on a permanent basis, the inflation expectations should be lifted, which is arguably the most critical element to long-term interest rates.  At the same time, the Fed can control the level of long-term rates by purchasing bonds and expanding its balance sheet.  Bond vigilantes only exist if the Fed allows them to, at least for assets it is willing to purchase.
• Is there a rate level on bonds that would trigger yield curve control?
  • The Fed may prefer a steeper curve, but how steep and how fast it steepens is an issue.  Let’s say the Fed wanted to allow the fed funds/10-year T-note spread to widen to its non-recession average of 1.41% observed since 1981.  Assuming fed funds of 9 bps, that would require a 10-year T-note yield of 1.32%.  That level is certainly not abnormally elevated compared to history but would jar the markets if it happened quickly.  If market participants concluded that this average was the terminal rate, the Fed may need to intervene to at least slow the rise.
  • It should also be noted that rising long-term rates may end up being a negative factor for employment. If the Fed is serious about reducing unemployment, it may need to control the yield curve to achieve this aim.
• What are potential market effects?
  • We do expect the Fed to eventually engage in yield curve control because a sharply rising long end will thwart its employment goals. As a consequence, the policy change will tend to reduce the diversification power of long Treasuries.  Let’s assume the Fed sets a ceiling of 1% on 10-year T-notes.  If the non-capped rate was really 1.50%, and the economy weakened or inflation fell, the non-capped rate would need to fall 50 bps before there would be any protective effect from falling long-duration rates.  It has been our position that the protective impact of duration to a portfolio has likely been exhausted.  The policy announcement appears to have confirmed our position.
  • We may see investment-grade corporates become the signaling device for the financial markets. That would mean we could see credit spreads rise in the absence of credit problems but due to rising inflation.  To clarify, if the Fed caps the 10-year T-note but not the 10-year investment-grade corporate, inflation concerns should cause the latter yield to rise, which may be incorrectly viewed as increasing credit stress.  This is a factor that bears close monitoring.  We are also assuming the Fed won’t cap corporate rates but admit we could underestimate how aggressive the Fed will be in lowering unemployment.
  • Precious metals fell yesterday, although we are seeing a recovery this morning. There is a general belief that gold is an inflation hedge.  That’s not exactly accurate.  A better way of thinking about gold is that it is a hedge against currency debasement and negative real interest rates.  In a situation of 10% inflation and 15% interest rates, gold would suffer.  However, with 2% inflation and zero interest rates, gold will do just fine.  We remain bullish on precious metals, and the Fed’s shift, if anything, supports that position.
  • We have been expecting dollar weakness; the Fed’s policy position supports a weaker dollar. This is good for commodities and foreign stocks.
  • Equities tend to be a better inflation hedge than bonds. But, rising inflation does tend to weaken multiples, and if tighter labor markets cause narrowing profit margins, the change in Fed policy may not be all that supportive for equities over time.  However, in the short run, with ample slack in the economy, there is nothing bearish about the change in Fed policy for stocks.

Laura:  The storm was massive, although initial reports suggest the damage was less than one would have expected given its magnitude.  Lake Charles may have suffered the worst devastation from the storm.  It does appear that refineries were mostly spared, which led to a sharp drop in gasoline futures prices yesterday.  The latest reports indicate there were six fatalities.

Political news:  We generally haven’t covered either convention in great detail; these are events for the party faithful and rarely offer much for markets.  That doesn’t mean we are not paying attention.  Underneath all the party “talk” we continue to watch coalition shifting within the parties.  The GOP is becoming increasingly populist, the right-wing variety.  As it does so, its capital-supporting policies implemented by Ronald Reagan are slowly being reversed.  One sign of this is that the GOP is pushing for greater government involvement and investment in the economy.  Since Reagan, the Republicans have generally been the party of small government and supportive of the private sector.  As it becomes more populist, the resistance to government intervention is falling.  This shift is being noticed; the Chamber of Commerce is backing more Democrats for congressional level offices, a controversial move within the Chamber.

China news:

• Buzzfeed has a long report detailing the construction of the Uighur detention camps, including some digital sleuthing to remove an attempt by someone to obscure satellite photos. China’s suppression of the Uighurs is not exactly news, but these reports add detail to the systemic lengths the Xi regime has taken to prevent any degree of autonomy for this ethnic and religious group.
• Defense Secretary Esper made a speech yesterday calling for allies in the Pacific to unite against the Chinese threat. It is just another in a long series of talks by U.S. officials making it clear that China is being seen as a threat.
• We rarely quote Global Times, a Chinese tabloid run by the CPC. We consider it a mere mouthpiece for CPC propaganda.  However, we do monitor it for occasional articles that may reflect internal thinking of the CPC leadership.  Today there was a report on what a Biden presidency would look like. The report argues that American policy toward China has changed, and regardless of who occupies the White House, there is no going back to American permissiveness toward China.  That doesn’t mean there would be no differences. Under Biden, the use of tariffs would be reduced, but there would likely be a greater emphasis on human rights.
• TikTok will likely sell its U.S., Canadian and New Zealand operations in the next few days.
• Chinese companies are issuing dollar bonds; interestingly enough, they have been able to fund these bonds without tapping U.S. investors. There are enough dollars in Asia to meet the supply of these issues.

Foreign news:

• Putin is warning protestors in Belarus that there are limits to how much unrest Moscow will tolerate. According to reports, Putin has created a squad of security personnel he will send in to restore order.  At the same time, it is clear Putin has little regard for Lukashenko and would likely be just fine with someone else running Belarus.
• New Zealand’s stock exchange has been hit hard by a series of cyberattacks that have forced the exchange to close trading for parts of the past four sessions. The country’s spy agency will be used to try to protect it from further attacks.  It is not clear who is responsible.
• We are seeing protests around the world; Thailand has been seeing increased activity.

Economics and Markets:

• The World Bank is delaying its publication of its widely followed business competitiveness report due to data irregularities from four countries—China, Azerbaijan, the UAE and Saudi Arabia. There have been accusations that countries are manipulating the data to improve their rankings.  This issue is sensitive; there is a dearth of such reports, and if the World Bank is being influenced by political factors then the usefulness of such reports is in question.
• There is modest progress on new stimulus talks; we don’t expect anything of substance until later in September.

 COVID-19:  The number of reported cases is 24,492,452 with 832,433 deaths and 16,027,948 recoveries.  In the U.S., there are 5,869,877 confirmed cases with 180,857 deaths and 2,101,326 recoveries.  For illustration purposes, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics.  The FT has also issued an economic tracker that looks across countries with high frequency data on various factors.  In the R_t data, 18 states are showing rising infection rates, while 32 have declining rates.  Washington State has the lowest, and South Dakota has the highest.

Virology:  

• The U.S. government has purchased 150 million of the new Abbott Labs (ABT, 111.29) rapid testing kits.
• Germany is facing a resurgence of cases. Although it isn’t reversing its recent reopening, further measures will be on hold until cases decline.  Most notably, it is keeping schools open, although reports suggest that some schools are being forced to retreat as infections return.
• The WHO did not visit Wuhan as part of its investigation of China’s pandemic response.

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by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

Good morning.  After hitting another new high yesterday, S&P futures are consolidating this morning. There is a lot to get through today; the first revision to GDP is out and is covered below.  We lead off with Chair Powell speaking this morning at a “virtual” Jackson Hole symposium (which will stream to the public).  His speech will commence just about the time we finish our comments so we will offer a recap tomorrow, but it is widely expected the Fed will announce changes to its reaction function regarding inflation.  Next, an update on Hurricane Laura.  China news follows with general economic and market updates.  Foreign news is next, and we close today with a pandemic update.  It’s Thursday, so a new Weekly Energy Update is available.  Let’s get to it:

The Fed:  Since Volcker, one of the key features of monetary policy has been to suppress inflation expectations.  To do this, the Fed has signaled it would react to preemptively contain any rise in inflation.  Over the years, the Fed has become increasingly transparent in its policy, setting an explicit inflation target (2% yearly growth in the core PCE deflator), for example.  However, it is arguable the Fed has been too successful.  In the last business cycle, the core PCE deflator was above or equal to 2% only 10.6% of the time.  Inflation is a complicated variable;[1] the Fed may have much less impact on it than the conventional wisdom suggests.  Regardless, we expect Chair Powell to make a somewhat explicit announcement today that preemption is likely over, and the Fed will be content to allow inflation to run over the target.  The market wants an explicit statement of the reaction function. For example, the Fed will target the three-year average of inflation.  We doubt it will be this clear; after all, the Fed wants policy flexibility,  but it also wants to signal that rates will stay low for a long time. Therefore, we expect Powell to disappoint on clarity but reassure nonetheless.

• Although we don’t expect Powell to address this issue, there are growing concerns about how much the Fed is doing in the financial markets. Sebastian Mallaby, one of our favorite commentators,[2] recently wrote about the tensions from the Fed’s ever-widening mandate.  Greg Ip has written a piece this morning.  Much of the Fed’s recent policy moves come close to fiscal policy; as it does so, the bank is brushing ever closer to politization.  Although the Fed has been joined at the hip to the Treasury in the past (it fixed the yield curve rate during WWII), its recent forays into areas of the corporate and municipal bond markets along with direct lending mean it is making choices about who gets credit.  We are starting to research the central bank digital currency area (look for this in an upcoming WGR), which could put the central bank squarely in the political arena.  As long as inflation is low, such broadening will be acceptable. However, once the Fed is required to tighten policy, tensions will become difficult to contain.

Laura:  The hurricane reached category 4 status before making landfall overnight.  It has weakened to a category 2 storm, and its current path looks like most of the Houston area, home to much of the U.S. refining industry, won’t take a direct strike.  However, Louisiana, also with significant refining assets, is in the direct path.  It is not uncommon for gasoline prices to jump in the aftermath of major refinery disruptions, so drivers should expect a temporary rise in prices.  The other concern is the storm surge and Laura was expected to deliver a massive one; we will be watching in the coming hours for the extent of the damage.

China news:

• Both the U.S. and its allies, and China, are holding simultaneous military exercises. China accuses the U.S. of violating its airspace, saying a U-2 reconnaissance plane watched military drills in a no-fly zone.  Beijing accused the U.S. of “naked…provocation” by the overflights.  The U.S. position is that the overflights did not violate China’s airspace but were in international airspace. China launched two missiles designed to attack aircraft carriers, the DF-26B and the DF-21D, as part of its exercises.  What is notable in China’s drills is that the PLA operated simultaneously in four different sea regions, testing its ability to operate on multiple fronts.
  • There are growing fears that the constant tensions may lead to an accidental escalation in military activity. Taiwan is especially concerned because it would likely be in the “firing line” of any kinetic war.
• The U.S. has unveiled a new set of sanctions on Chinese firms directly involved in the construction projects in the South China Sea. China has for years been building military installations on small outcroppings in this area; the U.S. treats these geographical features as mere rocks in the ocean and thus cannot be claimed as islands.  China considers them as part of its territory.  The difference matters. If China is right, the U.S. freedom of navigation operations are violations of its territory. If the U.S. is right, China can’t claim those rocks.  The move to sanction firms involved is yet another escalation of tensions.   If you are interested, here is a file of all foreign firms on which the U.S. has applied sanctions, the entity list.
• China’s foreign minister, Wang Yi, is on a mission to Europe to try to improve relations that have become frayed with Beijing’s treatment of Hong Kong and other issues. He is visiting Italy, the Netherlands, Norway, France and Germany.  One important goal is to try to support Huawei (002502, CNY 3.01) in Europe’s 5G buildout.  Wang’s trip has studiously avoided SoS Pompeo’s overseas visits.  Although the EU would prefer to have the flexibility to use Chinese technology, U.S. pressure will be considerable and difficult to overcome.  Meanwhile, the U.S. is considering accusing Beijing of genocide over its treatment of the Uighurs.
• In public statements, the U.S. and China remain committed to the Phase One trade deal. This agreement is about the only thread remaining where there is some degree of cooperation.  In nearly every other area, relations have turned sour.
• The U.S. has moved to force Chinese firms that list in the U.S. to follow American accounting rules. Chinese companies have tended to resist such measures and U.S. exchanges, wanting to get the listing, have not forced the issue.  That has changed; China wants to talk about it and indicates it is willing to make concessions.
• The CEO of TikTok has resigned.
• Chinese firms have been dual listing in Hong Kong and on the mainland. In an indication of the immaturity of China’s financial markets, prices for the same company on the STAR board have been much stronger than in Hong Kong.
• Xi Jinping carries two titles. He is the president of the state of China and the general secretary of the CPC.  He is rumored to be angling for the name “chairman” to be added.  If he does take that title, it will be the first time since Mao that a Chinese leader will be known as chairman.  Although symbolic, he would probably seek the title to set the stage for remaining in power beyond his informal two-term limit.

Economics and Markets:

• The OECD has detailed the depth of the pandemic downturn, confirming the decline is the worst in six decades for this club of nations.
• One of the bright spots for the U.S. economy has been the robust rebound in housing. Perhaps the most important development to this lift is that it is being driven by millennials.  This generation currently represents over 50% of new mortgages.  We have been waiting for some time for this generation to follow the path of earlier ones, leaving urban areas for the suburbs to start families and buy homes.  It looks like it is underway.
  • One of the interesting facets of this boom is that there appears to be a bias to larger homes. That might be driven by the pandemic.  At the same time, the price of smaller homes is increasing faster than larger ones.
• We are not sure how this will play out (we fear badly); the SEC has relaxed standards for investors to access private equity and hedge funds. The SEC has decided to give businesses more flexibility in disclosing risks as part of this change.
• The NYSE has approved alternatives to traditional IPOs.
• One of the more interesting developments is that households appear to be taking some of the stimulus to pay down debt. If this continues, it suggests that policymakers could resolve the private sector debt overhang with fiscal spending.

Foreign news:

• U.S. soldiers were injured after their vehicle collided with a Russian vehicle. Although both sides do appear to be trying to deescalate, the event bears watching.
• North Korean hackers are apparently trying to rob banks. Be careful with emails.  North Korea, who has already been hit by flooding, is bracing for Typhoon Bavi.
• Germany has been a model of fiscal restraint; however, during the pandemic, it has moved aggressively to lift spending, which could help the EU economy recover.
• Phil Hogan resigned from the European Commission. He was trade minister but got mired in a golf event that violated Ireland’s COVID-19 protocols.  There is a scramble for his replacement.
• Sweden has boosted its defenses as Russia conducts extensive military exercises in the Baltic Sea. Stockholm claims Russia’s war games are the largest since the end of the Cold War.

COVID-19:  The number of reported cases is 24,203,260 with 826,418 deaths and 15,825,921 recoveries.  In the U.S., there are 5,823,923 confirmed cases with 179,743 deaths and 2,523,771 recoveries.  For illustration purposes, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics.  The FT has also issued an economic tracker that looks across countries with high frequency data on various factors.  The weekly Axios map by state shows a definite improvement as the pace of infections decline.

Virology: 

• Abbott (ABT, 103.19) has unveiled a $5 rapid test that will generate results in about 15 minutes. The test has been given emergency approval by the FDA and, if it works reasonably well, would allow for schools and other entities to rapidly test groups on a regular basis.
• South Korea has been given high marks for its management of the virus. However, it is seeing a surge in new cases and is debating how to best manage the new outbreak.  The incumbent government is resisting extensive lockdowns, concerned about the impact on the economy; the opposition wants stricter measures.  Schools are reporting closures.
• Moderna (MRNA, 70.50) is reporting that its vaccine triggered an immune response in older adults comparable to those seen in younger test subjects.

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[1] After years of studying it, we have concluded that the most unappreciated part of inflation is expectations, followed by income distribution.  Under conditions of low inflation expectations and high levels of income inequality, inflation tends to remain low.

[2] His biography of Allan Greenspan is a must read.